Cash Discount Program: A Simple Guide for Merchants
A cash discount program is a way for merchants to decrease expenses by offering customers incentives to pay by cash or check instead of credit or debit card. This can be achieved by adding a service fee to the posted price for customers paying with a card and eliminating the payment processing fee associated with card transactions.
What’s the Difference Between a Cash Discount and a Surcharge?
A cash discount program is a way for merchants to offer a reduced price for customers who pay with cash, while a surcharge is an additional fee added to the posted price for customers who pay with a credit or debit card. The cash discount means that customers paying with cash will pay less than the listed price, while customers paying with card will pay the listed price. If a surcharge is added, card-paying customers will pay more than the listed price. Both cash discounts and surcharges are subject to laws and card brand rules, and combining them can lead to the closure of a merchant account. The benefits of cash discount programs include reduced expenses for merchants and potential savings for customers who choose to pay with cash.
In simple words, if a business is selling a product’s at $10,000, a cash discount will mean charging cash paying customers lesser than the selling price that’s $10,000.
A surcharge, on the other hand, means that card-paying customers will be paying more than the $10,000 that’s the actual selling price. It is obvious that both may sound similar, but the difference is extremely necessary to capitulate with laws and card brand rules. Combining the two can also shut down the merchant account. Now that we have elaborated enough, so now let’s have a clearer and deeper look into the benefits that you can reap through cash discount programs.
How Does Cash Discount Benefit the Merchant?
One of the most important benefit for merchants will be choosing a cash discount program is reduced or eliminated card-processing fees.
Increase in Cash Payments
There are a lot of customers that love to use their cards, offering a discount will undoubtedly incentivize more cash payments. This apparently means faster access to the funds for the merchant as processing times are obliterated. On the other hand, a rapid decrease in card payments will be beneficial in drastically eliminating the likelihood of fraudulent activity.
Contraction in Chargebacks
With the same principle, the card payments drastically reduce, and so will chargebacks. If you have dealt with numerous chargebacks, then choosing a cash discount program will eradicate the stake of them continuing at their existing price.
Get people through the door
Everyone knows that offering discounts on seasonal sales can be a tempting marketing strategy. Customers are naturally inclined to try to save money, and even small discounts can be effective in getting them to make purchases. This can also increase the likelihood of additional purchases.
Why not All Businesses are Jumping on The Bandwagon of Embracing a Cash Discount Program?
So, the thing is that adopting a cash discount program will not work wonders for each and every type of business. Or, at least, it’s not obviously the most appropriate solution for many businesses in the town. So, the thing is that what is the problem with cash discount programs, and what type of businesses should never adopt them, and why they shouldn’t?
Disadvantages of Cash Discounts
Preference for Cards
Many customers prefer not to carry cash and instead use credit or debit cards for their transactions. In fact, a survey found that 80% of consumers prefer using credit or debit cards as their payment method. If your business only offers discounts for cash payments, you may risk losing card-carrying customers.
Cash Discount Signage
If you do choose to offer cash discounts, it’s important to make the promotion clear to all customers through prominent signage. This can help to attract cash-paying customers while also being compliant with credit card brand rules and regulations. The signs should clearly state the percentage of the discount for cash payments.
Implementing the program
To comply with laws and regulations for cash discount programs, receipts should display service charges for card payments and the elimination of these charges for cash payments. Partnering with a reputable merchant service provider can assist in ensuring compliance. Finally, it’s worth considering which types of businesses are well-suited for implementing cash discount programs.
Is Offering Cash Discount Processing Right for your Business?
So, While cash discounts have many benefits they aren’t the best solution for every merchant, there are a few things to consider before jumping into the decision:
Do you actually prefer cash payments?
As discussed, offering a cash discount may increase cash payments but decrease card payments, resulting in lower processing fees for your business. However, it’s important to consider how your business currently handles cash and if implementing a cash discount would actually benefit you.
Both cash discount processing and credit card processing have their own advantages and disadvantages. Additionally, it’s commonly observed that customers who pay with cash tend to spend less, while those who pay with cards tend to spend more. Ignoring the needs of card-paying customers could greatly impact the revenue of your business. Therefore, it’s important to weigh the value of customers paying with cards before dismissing them.